David Tepper Sells Apple, Microsoft, and AIG

Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

David Tepper runs Appaloosa Management, one of the largest and most successful hedge funds.

Tepper’s fund has an impressive track record -- he recently said that $1 million invested in the fund in 1993 would be worth $149 million today.

According to his fund’s recent 13F filing, in the second quarter, Tepper made a number of major adjustments to his equity holdings. In particular, his fund sold large chunks of its stakes in Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and American International Group (NYSE: AIG).

Tepper continues to cut his exposure to Apple
Tepper’s fund was a big buyer of Apple in 2012 -- at its peak, it held nearly one million shares.

But so far in 2013, Tepper’s been selling Apple. He sold 40% of his position in the first quarter, cutting his holdings to just half a million shares. In the second quarter, he sold even more -- his fund now holds less than 400,000 shares.

Tepper’s stock sales have coincided with a public display of doubt. As stated previously, in May, he told CNBC viewers that, come September, he was hoping to be out of Apple entirely, unless the company did one of three things:

  1. Release a revolutionary new device (a new product to excite people)
  2. Sell a cheaper iPhone (get more people into the iOS ecosystem)
  3. Put out an iPhone with a larger screen (don’t lose customers to Samsung)

So far, Apple hasn't done any of those things, and September is about two weeks away. When Appaloosa’s next 13F filing comes out, it wouldn't surprise me if Tepper had sold his remaining Apple shares.

Tepper reduced his Microsoft holdings by 59%
Like Apple, Tepper was buying lots of Microsoft stock last year. In the fourth quarter alone, he bought 2 million shares, bringing his total holdings to more than 3 million.

But, in the recent quarter, Tepper cut his Microsoft stake significantly. His fund now holds just 1.4 million shares, down from a peak of about 3.5 million.

Given the recent trend in Microsoft, that might've been a smart move. Microsoft shares tumbled after the company’s July earnings report. The PC’s decline finally caught up with the Redmond tech giant, with Microsoft admitting that demand for PCs among consumers had fallen about 20%.

David Einhorn’s Greenlight Capital also sold its Microsoft stake earlier in the year. In a recent letter to investors, Greenlight said Microsoft’s business was in danger of shrinking after a decade of mismanagement.

On the flip side  ValueAct has been buying up Microsoft shares, and is reportedly seeking a seat on the board. ValueAct has argued that the decline of the PC is overblown, and that Microsoft’s cloud assets are worth more than what investors believe.

Tepper cut his AIG holdings by more than a third
AIG has been a hedge fund hotel in recent months -- it continues to be one of the most popular picks among fund managers.

And it’s been a good stock to own: shares are up almost 50% in the last year.

Tepper hasn't given up on AIG entirely -- his fund still owns about 2.8 million shares. But now trading near $48, AIG may finally be topping out.

Whitney Tilson made the case for AIG back in May. With the government cutting its ownership, management is more incentivized to deliver better results. Tilson argued that AIG should be expected to boost its buyback and initiate a dividend.

AIG did just that, paying its first dividend since 2008 this month.

Tilson’s price target for AIG was between $54 and $79. If he’s right, shares still have potential upside of 12.5%-64%.

Following Tepper’s picks
To be clear, investors should not blindly follow the picks in Tepper’s 13F -- or any other hedge fund manager, no matter how great their track record has been. Today’s filing only represented the firm’s long holdings as of the end of June -- any trades made in the last two months, as well as any short positions, are not reflected in the 13F.

Nevertheless, given the long-term success of Tepper’s fund, interested investors should at least keep an eye on Tepper’s holdings.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends American International Group and Apple. The Motley Fool owns shares of American International Group, Apple, and Microsoft and has the following options: long January 2014 $25 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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